Your Startup isn’t a Charity

Carter Laren
4 min readAug 23, 2016

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As a founder, finding an angel investor to write that first check is almost always a huge challenge. I’ve been in and around startups as an early employee, founder, advisor and angel for well over a decade now, and raising capital is never easy, and it is always critical.

If you’re the founder of a cannabis startup — whether you’re looking for mainstream capital or funds from within the legacy industry — that problem is compounded. Mainstream reticence means that if you’re attempting to raise from traditional angel investors then you have fewer to choose from, which not only makes getting to your first “yes” that much more difficult, but also gives those few willing investors more leverage in negotiating terms. Founders seeking capital from the industry itself have a separate set of problems. First, you need to navigate your way around any players looking to launder capital through your shiny new startup. Then, once you find legitimate industry investors (don’t worry — there are many), you will often have to either sift through them to find the few who already understand the philosophy and mechanics of angel investing, or you’ll have to try to educate them on what a SAFE agreement is, which is extremely time consuming and often doesn’t result in a check.

Those obstacles are somewhat obvious, but cannabis founders must also face an additional, more insidious one: mindset. Because cannabis prohibition is so morally outrageous, and because legalization efforts are finally approaching a tipping point, there is a tremendous amount of momentum behind philanthropic efforts and charity for the cause, and deservedly so. As a founder, it’s easy to blur the lines between your business and the movement. It’s easy to fall into the trap of feeling like your business deserves money because of all the good it will do if it flourishes in the way you envision. It’s easy to try to appeal to the philanthropic side of potential investors, positioning yourself alongside charities. There’s only one problem with this:

Your business is not a charity.

That doesn’t mean you can’t do good with your company. In fact, the very act of building a successful company means that you’re providing value, but there is a difference between philanthropy and investing. Philanthropy is a donation; there is no expectation of direct monetary returns. Instead, there is an expectation of intangible, non-monetary returns. Investing is the opposite; monetary returns are primary. In startup investing, since most startups fail completely, the expectation of said returns for any given investment must be enormous. While it’s true that many philanthropists also invest, and vice-versa, investors rarely (and shouldn’t) invest for philanthropic reasons. That distinction is something we teach first-time angel investors all the time, and it’s one that founders can’t afford to ignore.

If you’re a cannabis founder looking for investment, approach discussions from a capitalist perspective. Focus on why the market for your business is huge and growing, why your product or service is uniquely positioned to take advantage of that, how your vision for the future is compelling, and why you’ve got the right founding team to make it happen. Telling someone they should write a check because your startup “needs” the money may work for some charities, but it is the worst possible reason to give to an investor; it’s a colossal red flag and an immediate and emphatic “no” (even though they may not actually tell you “no” directly). At Gateway, we hear charity-style pitching way too often, either overtly or merely through overtones and innuendo, and it spawns a rejection letter from us every time. Like any venture firm, we have our own investors, and they want returns.

The fact is you probably don’t even want someone’s money if they’re “investing” for philanthropic reasons. Money that is not looking for a return is an enabler. It allows you to operate under the pretense that you’re building a viable business without the economic pressure to do so. When someone makes an actual investment in your company, it is validation that an independent third party sees the business opportunity in what you’re building. “Investment” in the form of charity is money without that validation, which puts you at a greater risk of building a house of cards. Also, you will probably need to raise a larger amount of capital in the future, and venture firms aren’t very likely to get confused about whether they are donating to charities or investing in businesses. What they are looking for is clear: an exit with a large multiple.

Of course, investors do love to see your passion and vision for the future and want to know you’re committed to building your company even when all odds are against you. If you communicate this, then the potential for intangible returns will shine through without you focusing on it. Appealing to their sympathies or to their pity will have the opposite of your intended effect. Instead, appeal to their self-interest: offer them the rare opportunity to own a piece of your inevitably successful unicorn. Show them that you’re not just an activist; you’re also an entrepreneur.

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Carter Laren

Founder of Unsafe Space. Former cryptographer and serial entrepreneur turned angel / VC. Peaceful parent & anarcho-capitalist. http://carterlaren.com